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September 2009 Archives

Articles/Commentary

What is the IMF’s Mission?Barry Eichengreen (Project Syndicate) Sep 2009
The International Monetary Fund has been one of the few beneficiaries of the global economic crisis. Just two years ago, it was being downsized, and serious people were asking whether it should be closed down. Since then, there has been a renewed demand for IMF lending. Members have agreed to a tripling of its resources. It has been authorized to raise additional funds by selling its own bonds. The Fund is a beehive of activity.

The Financial Crisis One Year AfterJeffrey D. Sachs (Project Syndicate) Sep 2009
It is now almost a year since the world economy teetered on the edge of calamity. In the span of three days, September 15-17, 2008, Lehman Brothers filed for bankruptcy, the mega-insurance company AIG was taken over by the United States government, and the failing Wall Street icon Merrill Lynch was absorbed by Bank of America in a deal brokered and financed by the US government. Panic ensued and credit stopped circulating. Non-financial companies could not get working capital, much less funding for long-term investments. A depression seemed possible.

Three Lessons from the Financial CrisisJohn Makin (AEI) Sep 2009
More than two years have passed since the U.S. housing bubble burst. That event ushered in a financial crisis that was not only intense but also stunning. So stunning in fact, that in August of last year, just a month before the collapse of Lehman Brothers, the global economy was close to a crisis worthy of comparison with the Great Depression, yet neither the markets nor the Federal Reserve had much of an inkling of what was to come. The Standard and Poor's (S&P) 500 Index had come down to about 1,300 from its October 2007 high of 1,576. Positive growth had just been reported for the U.S. economy during the second quarter of 2008 at an annual rate of 2.8 percent (later revised down to 1.5 percent). Almost one percentage point of that growth came from U.S. consumption, and government spending also contributed. The wave of relief after the Bear Stearns scare in March 2008 had provided a nice boost to the economy and to markets. That boost was further enhanced by the substantial contribution to growth from net exports (2.9 percentage points) thanks to what was, then, continuing strength in the global economy, especially in China, which had reported blistering 10.1 percent year-over-year growth in the second quarter of 2008. These and other positive components more than offset a drag from inventories and residential investment. In short, the real economy had not shown much evidence of damage emanating from the chaos that was churning in the financial sector.

The Global Impact of America’s Housing CrisisMartin Feldstein (Project Syndicate) Sep 2009
The bursting of America’s housing bubble in the summer of 2006 triggered the global financial crisis and recession. The sharp fall in house prices that followed caused a dramatic downturn in household wealth, leading to lower consumer spending and an overall fall in GDP. By now, wealth in the form of owner-occupied housing is down about 30%, equivalent to a loss of more than $6 trillion of household wealth.

A Less-is-More Growth Strategy for AfricaThorvaldur Gylfason (Project Syndicate) Sep 2009
If African countries were to adopt only one policy to boost economic growth and improve macroeconomic stability, they should reduce the number of currencies in circulation across the continent as quickly as possible. Doing so would most likely encourage trade, as happened in Europe with the arrival of the euro, and could help contain inflation – which is always good for growth – by imposing international discipline on monetary policy.

Can Finance Be Fixed?Tom Buerkle (II) Sep 2009
Policymakers have promised to overhaul financial regulation and rein in risk-taking in the wake of the crisis, but reform efforts are running into trouble in the U.S. and Europe.

The Future of the DollarRichard N. Cooper (PIIE) Sep 2009
The global financial and economic crisis and prospects for large and sustained budget deficits in the United States have prompted countries with massive dollar holdings such as China to consider alternatives to the US dollar. These countries realize that they would suffer losses if inflation eroded the value of the dollar securities they own. Are there feasible alternatives to the US dollar as a widely used international currency? Richard Cooper looks at possible alternatives—major currencies in use, such as the euro, the yen, the pound, or even the Chinese renminbi, and a synthetic currency such as the special drawing rights of the International Monetary Fund—and concludes that no other currency seems likely to overtake the US dollar, and it is likely to remain the dominant international currency for a long time. He notes that international use of the euro will grow, perhaps even more rapidly than that of the dollar for some years, but because of limitations on issuers and financial markets, the euro is not likely to displace the dollar. In a growing world economy, there is room for both. A deliberate international decision to create an international currency could displace the dollar, but that task would be formidably difficult. The prospective gains from such a creation would have to be sufficiently great to make governments willing to overcome the practical difficulties and to adopt the complementary policies (mainly concerning exchange rates) necessary to give a new international currency a compelling advantage over present arrangements.

From Financial Crisis to Debt Crisis?Kenneth Rogoff (Project Syndicate) Sep 2009
Everyone from the Queen of England to laid-off Detroit autoworkers wants to know why more experts did not see the financial crisis coming. It is an awkward question. How can policymakers be so certain that financial catastrophe won’t soon recur when they seemed to have no idea that such a crisis would happen in the first place?

Transborder Migration: Licit and IllicitMarcus Noland (PIIE) Sep 2009
While the effects of liberalized trade in goods have received much attention, research suggests that the gains from liberalized cross-border movements of labor would be much greater. But cross-border migration raises a number of economic and ethical issues, from individuals' right to seek a better situation for themselves and their families to the social externalities of increased migration both for sending and receiving countries. These issues are a source of growing controversy in countries around the globe, but the lack a multilateral mechanism to address cross-border migration ensures that individual countries will continue to respond to migration and its effects haphazardly, while the number of migrants only grows.

The Tobin Tax Lives AgainDani Rodrik (Project Syndicate) Sep 2009
Something happened in late August that I never thought I would see in my lifetime. A leading policymaker in the Anglo-American empire of finance actually came out in support of a Tobin tax – a global tax on financial transactions.

Sovereign Wealth Funds Embrace Hedge FundsII Sep 2009
Battered by the soured bets they made on global financial institutions at the peak of the credit crisis, sovereign wealth funds are waking up to the potential for hedge funds to provide a lot more than just noncorrelated returns.

Finding the Policy ExitNouriel Roubini (Project Syndicate) Sep 2009
There is a general consensus that the massive monetary easing, fiscal stimulus, and support of the financial system undertaken by governments and central banks around the world prevented the deep recession of 2008-2009 from devolving into Great Depression II. Policymakers were able to avoid a depression because they had learned from the policy mistakes made during the Great Depression of the 1930’s and Japan’s near depression of the 1990’s.

Emerging Markets and Global Financial ReformBarry Eichengreen (Project Syndicate) Sep 2009
It is fitting that the upcoming G-20 summit is being held in Pittsburg, an old industrial center of an advanced industrial country, for the advanced countries have been allowed to set the agenda for strengthening financial systems. Other than schadenfreude , emerging markets have brought little to the table.

The G-20’s Empty PromisesMartin Feldstein (Project Syndicate) Sep 2009
Talk about “exit strategies” will be high on the agenda when the heads of the G-20 countries gather in Pittsburgh a few days from now. They will promise to reverse the explosive monetary and fiscal expansion of the past two years, to do it neither too soon nor too late, and to do it in a coordinated way.

The IMF Beyond The CrisisAge Bakker (Project Syndicate) Sep 2009
When world leaders gather in Pittsburgh for the G-20 summit, they will take stock of the impact of the stimulus measures undertaken so far and discuss how to coordinate an orderly exit from those measures. They will need to strengthen international guidelines for capital requirements for large multinational banks and address the perverse financial incentives that led to irresponsible risk-taking in the financial sector. But the most lasting imprint they could leave is to give the International Monetary Fund a broader mandate after this crisis is over.

New Masters of Wall StreetLiz Moyer and Emily Lambert (Forbes) Sep 1, 2009
A brash new generation of traders is making a fortune by remaking financial markets--and it's good for the little guy.

Measuring economic growth from outer spaceJ. Vernon Henderson, Adam Storeygard & David N. Weil (VoxEU) Sep 2, 2009
GDP data is often poorly measured, especially for sub-Saharan Africa. This column shows that satellite data on lights at night can be used to enhance the quality of GDP growth measures. Using rainfall and satellite data, it also shows that growth of immediate agricultural hinterland of a sub-Saharan city spurs growth of the city.

Central bankers stuck in a holeHossein Askari and Noureddine Krichene (AT) Sep 1, 2009
Central bankers at their annual Jackson Hole, Wyoming, retreat celebrated their "success" in rescuing financial institutions and in paving the way for global economic recovery. By ignoring any responsibility for causing the continuing financial disaster, they merely clear the path for an even more severe crisis.

New goods in a Malthusian world: The welfare gains from coffee, tea, and sugarJonathan Hersh & Hans-Joachim Voth (VoxEU) Sep 3, 2009
There is a broad consensus that living standards stagnated for millennia before the Industrial Revolution. This column attributes that conclusion to a measurement error in real wage indices. The introduction of new goods such as coffee, sugar, and tea to England in the 1700s and 1800s dramatically raised living standards – perhaps more than 15%.

G20 plans for stimulus exitFT Sep 3, 2009
Recovery in the world’s economy now looks likely to come earlier than had been expected just a few months ago, according to OECD data

Financial stability depends on more capitalTimothy Geithner (FT) Sep 3, 2009
Capital requirements for banks simply must be higher across the board. Bringing more capital into the banking system is vital. It is equally crucial to hold the largest, most interconnected institutions, whether or not they own banks, to tougher standards than others

Europe has mapped its monetary exitJean-Claude Trichet (FT) Sep 3, 2009
Our fellow citizens can have full confidence in the determination and ability of the ECB to deliver price stability.

Bernanke: Greenback’s New FatherNYT Sep 3, 2009
Six months after the financial world seemed to be coming to an end, the world’s economies appear to be recovering. Banks that seemed to be on the brink of failure less than a year ago are now able to pay back investments made by the Treasury.

The crisis and citizens’ trust in central banksDaniel Gros & Felix Roth (VoxEU) Sep 4, 2009
Most observers agree that central banks can claim partial credit for the stabilisation that have been achieved and the prospect of a recovery. This column warns that the general public seems to hold a completely different opinion; trust in central banks has declined and the reaction of central banks to the crisis is generally judged as unsatisfactory. Central bankers all over the world should redouble their efforts to regain the trust of the people towards their institution.

Systemic risk and deposit insurance premiumsViral Acharya (VoxEU) Sep 4, 2009
Financial institutions enjoy a large number of government guarantees. This column says that we ought to be charging banks for such subsidies and doing so in a way that promotes financial stability. It uses the example of demand deposit insurance in the US to explore the poor design of funding for such guarantees.

Doha deadlock seeks Obama lineAT Sep 5, 2009
The Doha round of trade talks has stumbled along for eight years without resolution, and United States President Barack Obama has yet to make clear how, or if, he might seek a breakthrough. Meetings in Delhi this week and Pittsburgh later in the month should bring some clarification.

Rising Unemployment Marks Crisis Third Wave, Says IMF ChiefIMF Survey Sep 5, 2009
Policy action to combat the worst economic crisis since the Great Depression is working, but governments should not relax stimulus measures until recovery takes hold and unemployment levels recede, the head of the IMF says at a meeting of G-20 ministers in London.

Fixing the trade finance gapJean-Pierre Chauffour & Thomas Farole (VoxEU) Sep 5, 2009
In April, G20 leaders agreed to massively support trade finance. Should international trade finance be a significant concern in current circumstances? This column cautions against overestimating the trade finance “gap”, yet highlights the possible rationales and conditions for an effective intervention in support of trade finance.

How to Get Rich the Asian WaySteven Mufson (WP) Sep 6, 2009
Michael Schuman provides an engaging and readable account of the story of Asia's economic rise with interviews with some of Asia's key policy makers, national leaders and business tycoons. It is economics as biography, character as developmental destiny.

How Did Economists Get It So Wrong?Paul Krugman (NYT Magazine) Sep 6, 2009
It’s hard to believe now, but not long ago economists were congratulating themselves over the success of their field.

Procurement that pays: Foreign outsourcing, innovation, and profit dynamicsHolger Görg & Aoife Hanley (VoxEU) Sep 7, 2009
This column examines the impact of offshore outsourcing on firms’ profits and innovation. Using data on 2,000 Irish firms, it shows that the purchase of foreign inputs raises both profits and innovation. Offshore outsourcing seems to improve competitiveness and bode well for an economy’s long-term economic health.

Why it is still too early to start withdrawing stimulusMartin Wolf (FT) Sep 8, 2009
The rescue of the financial system, unprecedented monetary easing and fiscal expansion have indeed put a floor under the world economy. But it is too early for the Group of 20 leading economies to pat themselves on the back.

The Next Financial Crisis: It's Coming—and We just Made It WorsePeter Boone and Simon Johnson (PIIE/TNR) Sep 8, 2009
The United States has been in a bubble-bust-bailout cycle since the late 1920s. During the most recent crisis, Ben Bernanke saved the financial system in the short term while exacerbating the long-term pattern of bubble-bust-bailout. A proposal unveiled by Treasury Secretary Timothy Geithner to reduce the number of agencies carrying out regulation and giving new powers to the Fed is unlikely to work, because of the proposal's inability to alter banks' incentive to take excessive risks. We propose a four-part solution to the bubble-bust-bailout cycle that centers heavily on making bank owners more financially responsible for the risks they take. The first part of their solution is to sharply raise capital requirements at banks so shareholders have more at stake and feel that their money is truly at risk when a bank takes gambles. Second, the managers and boards of directors of financial institutions should be personally liable up to a reasonable sum when their companies fail—losing a portion of past salaries and bonuses while seeing their pensions reduced. Third, rules need to be put in place so that regulators and public servants are not financially conflicted. Finally, we need more assertive leadership at the Fed regarding broader system issues.

Delhi Meeting 'Breaks Impasse' in Doha TalksBridges Weekly Trade News Digest, Volume 13, Number 30 Sep 9, 2009
First politics, then substance, seems to be the order of the day for the WTO's Doha Round of global trade talks. A meeting of trade ministers from more than 30 countries held in New Delhi, India last week produced a 'unanimous' resolve to push ahead in the negotiations, but the officials shied away from discussing the technicalities of the talks, which is where the real work remains to be done.

No Big Fix for Global FinanceBusinessweek Sep 9, 2009
New regulations will be tepid—and will leave the global financial system, and taxpayers, at risk.

The Dilemma of the Diving DollarIrwin Stelzer (New York Post) Sep 9, 2009
There was a time when the US Treasury secre tary would stand on the steps of the Treasury building and pronounce America's policy of maintaining a strong dollar. No longer -- for two reasons.

Rearranging the towers of goldEconomist Sep 10, 2009
Wall Street has staged a surprisingly strong recovery from its meltdown a year ago. But it will not return to business as usual.

Unnatural selectionEconomist Sep 10, 2009
Wall Street and the City of London survived thanks to state support. Now they need to be weaned off it

Turner is asking the right questions on financeMartin Wolf (FT) Sep 10, 2009
The debate is the right one but the more one analyses the debate and what is happening, the more difficult it is to believe that a safer and more responsible industry is emerging.

To fix the system we must break up the banksPhilip Augar and John McFall (FT) Sep 10, 2009
The connection between effort and reward must be proportionate and the playing field needs to be level if we are to secure a fully functioning market economy.

Slashing TiresWP Sep 11, 2009
President Obama has maintained a conspicuous ambiguity about trade policy, sympathetically absorbing and sometimes restating the arguments both for and against free trade but not really committing himself on any particular issue. Now time may be running out on that stance.

Climate change and developing country growthMichael Spence (VoxEU) Sep 11, 2009
In fifty years, 3.4 billion people in developing countries will approach advanced country income levels with consumption, energy use, and emissions patterns to match. This column says that advanced countries should lead the way with technology and a global strategy to reduce the carbon intensity of their economies. That will lay the groundwork for developing economies to follow a sustainable path as they graduate to higher income levels.

Opinion: Waiting for AnswersDavid S. Abraham (NYT) Sep 11, 2009
Remembering that fateful day at Lehman Brothers - and still wondering what happened.

Opinion: Beyond the CrisisJohn Reid (NYT) Sep 11, 2009
The anniversary of the fall of Lehman Brothers provides an opportune moment to reflect upon what has been described as the first crisis of globalized finance.

Revisiting the death of distanceDavid Jacks Sep 12, 2009
The sensitivity of bilateral trade flows to distance has remained unchanged or increased over the last half century, even in the face of unprecedented levels of global trade. This column shows that the effect of distance dramatically declined during the nineteenth century as trade costs fells, suggesting that trade costs may have not declined nearly as dramatically in recent decades as has been assumed.

It is never too early to fear inflationClive Crook (FT) Sep 13, 2009
Justified anxiety about long-term public debt will make the task of managing inflation expectations, and hence the operation of short- and medium-term monetary policy, even harder. Congress could help by coming up with a fiscal consolidation plan.

Towards a better measure of well-beingJoseph Stiglitz (FT) Sep 13, 2009
GDP will continue to be used as a measure of market activity, but when it comes to measuring societal welfare, we will have to look to other metrics.

Obama's decision on tariffs is calculated cynicismCharles Freeman (FT) Sep 13, 2009
The US may import fewer tyres from China, but this decision is not going to jumpstart moribund domestic tyre production. This is protectionism without the protection.

Wheel of fortune turns as China outdoes westMargin Wolf (FT) Sep 13, 2009
China has emerged as the most significant winner from the global financial crisis. At the end of 2008, many questioned whether China would achieve its growth target of 8 per cent in 2009. Who now dares to do so?

Tires, Globalization, China, and the WTOArvind Subramanian (PIIE) Sep 14, 2009
The decision by the United States to slap a 35 percent tariff on tire imports from China is, of course, significant. It follows a decision last week by the US Department of Commerce to impose countervailing duties on imports of steel pipe from Chinese firms. In the world of the 24/7 news cycle, one trade action may be an accident but two will be interpreted as a trend. The perception of escalating trade tensions between the United States and China cannot be avoided. And the timing is awkward—two weeks ahead of the G-20 Summit of world leaders at Pittsburgh where President Obama is host and, the in the eyes of the Chinese, now also the perpetrator of these trade actions.

Why a Lehman deal would not have saved usNiall Ferguson (FT) Sep 14, 2009
If only Lehman Brothers had been saved, all would have been for the best in the best of all possible worlds. Actually no. A decision to bail out the bank would almost certainly have had worse consequences than letting Dick Fuld and his company go under.

Wall Street Model Is Just Financial OrigamiBrendan Moynihan (Bloomberg) Sep 15, 2009
The simplicity of Wall Street’s business model is often masked by the complexity of its innovations, what some now call financial engineering.

Lehman and the Financial CrisisJohn Cochrane and Luigi Zingales (WSJ) Sep 15, 2009
The lesson is that institutions that take trading risks must be allowed to fail.

China: China's Under-Consumption Over-StatedQing Wang & Steven Zhang (MS GEF) Sep 15, 2009
A common thesis is that if US consumers were to stop spending, the negative impact on the rest of the world would be too large for the Chinese consumers to play a meaningful offsetting role. We disagree.

Tangled up in trade? The “noodle bowl” of free trade agreements in East AsiaMasahiro Kawai & Ganeshan Wignaraja (VoxEU) Sep 15, 2009
East Asian economies adopted numerous preferential trade agreements over the last decade. This column summarises the results of a survey of firms in the region examining the effects of those trade deals. The region’s exporting manufacturers largely view trade preferences positively, though further policy action is needed to maximise the potential benefits.

Do not learn wrong lessons from Lehman's fallMartin Wolf (FT) Sep 15, 2009
We were not so foolish as to risk a cascading failure of banks. Yet we cannot let stand the doctrine that systemically significant institutions are too big or interconnected to be allowed to fail. No normal profit-seeking business can operate without a credible threat of bankruptcy.

Senior Officials Discuss Doha 'Road-Map'Bridges Weekly Trade News Digest, Volume 13, Number 31 Sep 16, 2009
Senior negotiators from major trading nations met in Geneva this week to try to agree on next steps for the troubled Doha Round of trade talks, following a ministerial meeting in Delhi where governments agreed to re-energise negotiations with the aim of concluding the round in 2010. However, several delegates expressed scepticism about the prospects for progress in the absence of any movement in countries' actual negotiating positions.

US Tyre Tariffs Spark Spat with ChinaBridges Weekly Trade News Digest, Volume 13, Number 31 Sep 16, 2009
In his first major trade move since taking office in January, US President Barack Obama announced on Friday that the US would impose 35 percent tariffs on Chinese tyres in a bid to shield domestic producers from what the White House Press Secretary called an 'exponential' increase in imports of the products. The move triggered a swift reaction from China, which filed a WTO dispute case against the new duties just three days later, alleging that the tariffs violate world trade rules.

Some fires are best left to burn outWilliam White (FT) Sep 16, 2009
Can macroeconomists learn from forest managers? For decades, successive economic downturns have been met with massive monetary and often fiscal stimuli. But did the policy re­action to each successive set of difficulties lay the foundations for the next one,

Asia banks for a world turned upside downDavid Pilling (FT) Sep 16, 2009
If western banks have been turned upside down, in Asia they have been turned downside up. A year after the Lehman implosion, four of the world's top 10 banks are Chinese.

A tax on finance to help the world's poorBernard Kouchner (FT) Sep 16, 2009
Innovative financing mechanisms are no longer merely an option. They have become necessary if we are to provide assistance to the world's poorest people.

Making Capital Rules WorkAdam S. Posen (PIIE) Sep 16, 2009
Stricter capital standards can be successfully enforced if the G-20 governments commit to a rules-based approach rather than allowing individual countries to maintain discretion over how the standard is enforced. This commitment would entail some cost in flexibility and probably result in greater initial contraction of credit as the financial system adjusts. Those costs are dwarfed, however, by the results of the alternative approach we have already seen: politically influenced lending programs off-balance sheet, international races to the bottom for corporate advantage, and no credible deterrence of moral hazard. The G-20 should make a very blunt, transparent, simple, and yes inflexible rule about how much capital all financial institutions need, of what specific type, and enforce it at an international level. Anything less will probably be gotten around in short order.

All Talk on TradeWP Sep 17, 2009
After the tariff on Chinese tires, Mr. Obama must prove his commitment to open markets.

A deluded G-20Hossein Askari and Noureddine Krichene (AT) Sep 17, 2009
The Group of 20's self-congratulatory tone in the run-up to its Pittsburgh summit next week shows that governments have learned little from the financial crisis, have no clear "exit" plan and are trapped in a populist demand framework. Their goal of rapid economic recovery at any cost involves unsustainable policies and will end with economic turmoil.

For US, China is the financial bogeymanBenjamin A Shobert (AT) Sep 18, 2009
An emotive new television advertisement in the United States aimed at awakening people to the long-term perils of rising national debt has an unflattering, none-too- subtle nod to China. The commercial infers that tomorrow's generation of Americans will be beholden to Beijing due to its large holdings of US debt, and that the debt problem is somehow China's fault.

Scourge of commodity inflation returnsHossein Askari and Noureddine Krichene (AT) Sep 18, 2009
Central banks continue to ignore commodity price inflation and to deny any link between that and monetary policy. As a result, and as policymakers congratulate themselves on low "core" inflation, consumers are again facing higher prices in their most important purchases - food and fuel.

Global Economic Prospects as of September 2009: Onward to Global RecoveryMichael Mussa (PIIE) Sep 17, 2009
The United States and the world economy have embarked on economic recoveries that will gather strength in the second half of 2009 and proceed fairly strongly through next year and into 2011. These recoveries may not be quite as vigorous as earlier postwar recoveries following deep recessions, but they will surpass almost all current forecasts on the upside and will once again illustrate that steep recoveries tend to follow deep recessions. While most economic forecasters expect a tepid recovery, and some fear a "double dip" in which economies fall back into recession at an early stage, Mussa expects "a V-shaped recovery" to be the most likely course. He forecasts that real GDP growth in the world will be –1.1 percent this year and 4.2 percent in 2010, spurred in part by greater than anticipated growth in developing countries and emerging markets. Real GDP growth in the United States will be –2.4 percent in 2009 and 4 percent by the end of next year. The US unemployment rate in 2009 peaks at or a little below 10 percent but will fall below 9 percent by the end of 2010. China and India, which have been leading the global recovery, will register growth rates of 8.3 and 6.4 percent, respectively, in 2009 and 9 and 7.5 percent, respectively, in 2010. Mussa's forecast for 2009 is modestly above corresponding forecasts by the International Monetary Fund (IMF) but considerably higher than the IMF forecasts for 2010. Economic performance over the next 16 months will reveal whether Mussa's "conservatively optimistic" view is correct.

No need for an orderly queue to exitJim O'Neill (FT) Sep 17, 2009
The pressure is on for leading countries to agree a co-ordinated strategy to lift emergency measures next week. They may well fail – but it should not matter

Obama's tariffs move may be smart after allAlan Beattie (FT) Sep 17, 2009
The conventional wisdom in Washington is that this is a straight trade-off. Placate the labour unions on trade and get them to support Mr Obama on healthcare.

The IMF assessedEconomist Sep 17, 2009
The IMF has done well under Dominique Strauss-Kahn, but its future is unclear.

The IMF: Back from the deadEconomist Sep 17, 2009
The International Monetary Fund has had a good crisis under Dominique Strauss-Kahn, its ebullient managing director. Even so, its future is unclear.

Global: ‘Up' With ‘Swing'Joachim Fels (MS GEF) Sep 18, 2009
Investors have fully embraced the liquidity and growth ‘sweetspot’ theory, so all asset classes have rallied. However, we think that investors, while still very much focused on downside risks, are too complacent about the upside risks to growth.

Tired ProtectionismNYT Sep 18, 2009
The new tarriff on tires from China may be legal, but it is bad economics and bad foreign policy.

What’s driving the trade collapse?Douglas L. Campbell, David Jacks, Christopher M. Meissner & Dennis Novy (VoxEU) Sep 19, 2009
Trade has declined massively during the crisis. This column assesses the relative roles of falling demand and rising trade costs in explaining the collapse and compares it to the Great Depression. Surprising, the increase in trade costs today is as large as in 1929, despite the absence of any modern protectionism resembling Smoot-Hawley. It appears that reviving global demand alone will be insufficient to revive world trade.

Moral hazard is backChan Akya (AT) Sep 19, 2009
There is clearly a class of people who do not face the full force of the law because of who they happen to be. The same stunning level of corruption is also true for banks, bailouts and financial systems. This will be the unsavory legacy of the Lehman Brothers aftermath.

Facts and the Financial CrisisNYT Sep 19, 2009
The commission examining the financial crisis has had a slow start. It should mount a rigorous inquiry to explain the underlying and immediate causes of the crisis.

Present at the Trade WarsDavid Rockefeller (NYT) Sep 20, 2009
Economic anxiety is fueling protectionist sentiment both here and abroad, but a retreat from international trade agreements would repeat the mistakes of the 1930s.

Deal with the banks while they are downClive Crook (FT) Sep 20, 2009
With an economic recovery under way, the finance industry's reticence, such as it is, will disappear – as that happens, the G20 governments must stick together in facing down the pressure for a less onerous bank capital regime.

Toxic assets in the 18th centuryOren Levintal & Joseph Zeira (VoxEU) Sep 21, 2009
Problems of regulation appear whenever financial innovations change the ways capital markets operate. This column describes the 18th century emergence of the inconvertible banknote, a "toxic asset” ended by government regulation. The lesson is that free financial markets promote financial innovation, but government must provide adequate regulation keeping the market on track.

Revive Securitization to Speed Exit from Crisis, says IMFIMF Survey Sep 21, 2009
Restarting securitization markets, particularly in the United States, is critical to limiting the fallout from the economic crisis and to the eventually withdrawing central bank and government support, the IMF says.

Update on global protectionist measuresSimon J Evenett (VoxEU) Sep 22, 2009
Economists have been particularly wary of protectionism since the recession’s onset. This column presents new evidence that numerous governments, including G20 nations, have implemented protectionist measures. It calls for G20 members to halt further trade-distorting measures and review those identified by major monitoring initiatives.

Do not discount what you cannot measureJohn Kay (FT) Sep 22, 2009
Bogus measures add nothing to our understanding – they attempt to compress complex problems and analyses into single observations.

Why China must do more to rebalance its economyMartin Wolf (FT) Sep 22, 2009
Remember how poor hundreds of millions of Chinese still are. Then consider that the net transfer of resources abroad was equal to a third of personal consumption. China needs to increase consumption, and that means revaluing the currency.

The real effects of bank bailouts: Evidence from JapanMariassunta Giannetti & Andrei Simonov (VoxEU) Sep 23, 2009
Is there any evidence that bank bailouts will improve the real economy? This column uses micro-level evidence from the Japanese banking crisis to assess bank recapitalisation efforts. It says that bailouts do increase lending, but banks continue to lend to low-quality borrowers, and borrowers may hold the cash on their balance sheets rather than investing or hiring.

All Together NowGordon Brown (NYT) Sep 22, 2009
The global crisis has demanded unity on an immense scale, yet there are five urgent challenges that confront us.

Snail's paceEconomist Sep 22, 2009
Recovery from this recession is likely to take several years, says the IMF.

Gross domestic fudgingMartin Hutchinson (AT) Sep 23, 2009
Measures of gross domestic product need a rethink, but not along lines proposed by Joseph Stiglitz. Required is a gauge of the genuinely valuable output of a real economy, stripping out government spending - a negative to growth. The public will then rapidly become aware that they are being impoverished.

'Cautious' Lamy Presents Doha Road-Map, Previews G20Bridges Weekly Trade News Digest, Volume 13, Number 32 Sep 23, 2009
WTO Director-General Pascal Lamy presented delegates with a packed schedule of meetings over the next three months at a meeting of the Trade Negotiations Committee on Tuesday morning. But the mood among trade officials "remains sombre," one delegate said, as many continue to question whether domestic politics in the United States will prevent any progress in the talks.

The Ruble as a Global Reserve Currency? No!Anders Åslund (Moscow Times/PIIE) Sep 23, 2009
The ruble cannot possibly become a reserve currency for the next half-century. To become a major financial center, Moscow needs many years of serious reforms not even contemplated today.

Markets are the best judge of bank capitalAndrew Kuritzkes and Hal Scott (FT) Sep 23, 2009
A key lesson from the credit crisis is that, regardless of the level at which the minimum is set, regulatory capital, by itself, is not sufficient to prevent large banks from failing.

Insight: Equities carry too much riskDavid Rosenberg (FT) Sep 23, 2009
The banker J.P. Morgan was fond of saying: “I never buy at lows, I never sell at the highs, I play the middle 60 per cent.” Well, from our lens, we are well past that middle 60 per cent point of this bear market rally.

A Tiny Tax Could Do a World of GoodPhilippe Douste-Blazy (NYT) Sep 23, 2009
The G-20 nations could help both the poor and the global economy by imposing a very small tax on the prosperous foreign exchange industry.

Five Things to Watch for at the G-20Steven R. Weisman (PIIE) Sep 23, 2009
A century ago Pittsburgh was home to one of the greatest concentrations of millionaires on earth. Their names still rumble with authority: Carnegie, Mellon, Frick, Westinghouse, Heinz, and Schwab. This week the names descending on Pittsburgh are millionaires only in the sense that the global financial crisis forced them to bail out, and effectively own, some of the biggest financial institutions in their countries: Obama, Brown, Sarkozy, Merkel, Hu, Hatoyama, and many others. Their task is to take the measure of the Great Recession and, with more rumble than authority perhaps, reassure us that we are finally heading out of it.

To coordinate or not to coordinatePaul De Grauwe (VoxEU) Sep 24, 2009
A key issue at the G20 is coordinating exit strategies. Empirical research suggests demand spillovers from fiscal policy are too small for national leaders to waste much time on; uncoordinated exit for fiscal stimulus packages is unlikely to be a major threat to global demand. This column argues that research is flawed as it was based on data and theory for economies near full-employment – not today’s situation. G20 leaders need to address fiscal and monetary stimulus coordination exit strategies.

The IMF Crisis Balance SheetArvind Subramanian (PIIE) Sep 24, 2009
How has the IMF fared in relation to the crisis? The assessment has to be in relation to the three stages of the crisis: the run-up, clean-up, and follow-up. My assessment would be something like: cock-up in the run-up; thumbs-up for the clean-up, and doubts about the follow-up.

Global: Growing PainsManoj Pradhan (MS GEF) Sep 24, 2009
In our view, the biggest risk to medium-term growth is a policy mistake. Stronger-than-expected growth over the next few quarters may lead to a rise in inflation expectations, which may in turn prompt a premature start to the tightening cycle, as it seems to have done in the past.

Four things you must know about the global puzzlePhilip Stephens (FT) Sep 24, 2009
The UN and G20 jamborees leave the new world landscape a work in progress. But some contours stand in sharp relief: Chinese multilateralism; the Middle Eastern challenge to US power; Obama’s effort to frame new rules for the global game; and Europe’s place on the margins.

Tax trades to share the costs of the crisisPeer Steinbrück (FT) Sep 24, 2009
A small levy on financial market transactions would generate vast sums and show Main Street that Wall Street is sharing the pain of reconstruction.

Global Economic ChallengesNYT Sep 24, 2009
The members of the Group of 20 should share the credit for avoiding the economic abyss, but now they must confront the causes and cures of the financial crisis.

Mobile money in the poor worldEconomist Sep 24, 2009
Mobile phones have transformed lives in the poor world. Mobile money could have just as big an impact.

Financial innovation and the poorEconomist Sep 25, 2009
You might suppose that financial innovation had done enough damage. But bankers, investors and philanthropists believe it can help the world's poor

Tariffs bill will reboundJohn Browne (AT) Sep 25, 2009
The United States decision to impose tariffs against low-end tire imports from China may indicate the White House considers a touch on the protectionist tiller and a weaker dollar to its advantage. The eventual bill will fall to Americans.

The long-lasting socio-political effects of the economic crisisPaola Giuliano & Antonio Spilimbergo (VoxEU) Sep 25, 2009
Economic events can have long-lasting non-economic effects. This column shows how economic circumstances affect individuals’ life-long beliefs. Individuals growing up during recessions tend to believe that success in life depends more on luck than on effort and support more government redistribution, but they are less confident in public institutions. The current severe recession may be forming a generation that is more risk-averse and believes more in redistribution.

A new way to auction off toxic assetsPaul Klemperer (VoxEU) Sep 25, 2009
The crisis set policymakers scrambling for appropriate mechanisms to respond to financial turmoil. This column proposes a new auction design that can be used for toxic asset purchases and central bank liquidity auctions in a credit crunch.

A New Model for Banks?David Ignatius (WP) Sep 25, 2009
Hedge funds offer a lesson on how to manage bank risk: Let them fail.

Reformed IMF Lending Has Worked Well In CrisisIMF Survey Sep 25, 2009
Recent IMF-supported programs in emerging market countries are delivering the support needed to help these countries weather the worst of the global financial crisis, according to an IMF staff study. Increased resources, supportive policies, and more focused conditionality are the main reasons cited.

The IMF Should Move to EuropeSimon Johnson (PIIE) Sep 25, 2009
The headline news from the G-20 summit in Pittsburgh is that progress has been made on “IMF reform,” meaning increased voting power for emerging markets relative to rich countries—remember that Western Europeans are greatly overrepresented at the IMF for historical reasons.

The G-8 Is DeadAnnie Lowrey (FP) Sep 25, 2009
A short history of a bad idea.

Can China be the world’s growth engine?Markus Jäger (VoxEU) Sep 26, 2009
Can the BRICs replace the much-touted US consumer as the world’s main growth engine? This column says the Chinese economy will continue to increase relative to all others, while the US share of global output will stagnate. But while China’s relative contribution to global growth will increase, it won’t be “driving” growth in the developed economies.

This time will never be differentMartin Wolf (FT) Sep 27, 2009
A seminal empirical study of the frequently repeated cycles of euphoria, panic and default in public debt and global finance.

In defence of financial innovationRobert Shiller (FT) Sep 27, 2009
The fact that a bubble could grow this large is a sign of imperfect financial institutions, rather than overly complex ones.

A recognition of the deep roots of the crisisWolfgang Münchau (FT) Sep 27, 2009
We are still a long way from effectively dealing with the underlying causes of the crisis, but global imbalances have finally made it on to the agenda of the G20 summit.

Reformed IMF Lending Has Worked Well In CrisisIMF Survey Sep 28, 2009
Recent IMF-supported programs in emerging market countries are delivering the support needed to help these countries weather the worst of the global financial crisis, according to an IMF staff study. Increased resources, supportive policies, and more focused conditionality are the main reasons cited.

What explains the cost of remittances?Thorsten Beck & Maria Soledad Martinez Peria (VoxEU) Sep 28, 2009
Remittances impact development along a number of dimensions including poverty alleviation, education, and entrepreneurship. However, such transactions are expensive. This column shows that a bigger stock of migrants and more competition are associated with lower transaction costs. It says policymakers should focus on improving competition in the remittance market, as regulations have only a limited effect.

Return of the Old Ways of Thinking Threatens RecoveryMohamed El-Erian (PIMCO) Sep 28, 2009
We are at the point of maximum confusion in the multi-year transition of the global economy, markets and policymaking. We have left the global growth regime that was driven primarily by debt-financed consumption in the U.S., but we have not as yet reached a position of more balanced, albeit anemic, growth. Those who lack a robust anchoring framework, be they investors or policymakers, risk being misled and backtracking to outdated ways of thinking.

G-20 takes up reins from G-8AT Sep 29, 2009
World leaders meeting as the Group of 20 agreed for that body to take over from the Group of Eight as the top forum for economic diplomacy, and in a nod to the poor, vowed to pursue a World Bank food initiative. Power at the International Monetary Fund is also to move slightly in favor of developing countries.

Paying more attention to financial shocksUrban Jermann & Vincenzo Quadrini Sep 29, 2009
The financial crisis has made it clear that macroeconomic models need to allocate a more prominent role to financial frictions. This column provides a framework where the financial sector can be the “source” of business cycle fluctuations. The model suggests that credit shocks have played an important role in all major recessions experienced by the US economy during the last two and a half decades.

Why narrow banking alone is not the finance solutionMartin Wolf (FT) Sep 29, 2009
Demanding that banks act as narrow utilities solves the problem of the financial system taking control of the power to print money, but would need to be paired with a ban on other forms of banking. Such radical ideas may yet be entertained.

The G-20, the IMF, and LegitimacySimon Johnson (PIIE) Sep 29, 2009
Strong advocates of our new G-20 process are convinced that it will bring legitimacy to international economic policy discussions, rule-making, and crisis interventions. Certainly, it's better than the G-7/G-8 pretending to run things—after all, who elected them? But who elected the G-20? The answer is: no one. And, in case you were wondering, there is no application form to join the G-20 (although you can crash the party if you have the right friends, e.g., Spain). The G-20 members have appointed themselves as the world's "economic governing council" (to quote Gordon Brown).

'No one saw this coming' – or did they?Dirk Bezemer (VoxEU) Sep 30, 2009
Did economists not see this crisis coming? This column says that analysts who used models featuring a distinct financial sector issued fairly detailed, well reasoned, and public warnings of imminent finance turmoil. It argues that mainstream models missed the crisis because they use a “reflective finance” view in which financial variables are wholly determined by the real sector. “Flow of funds” models may be the way forward for anticipating finance-induced recessions.

G20 Leaders Call for Minsters to Meet on Doha in Early 2010Bridges Weekly Trade News Digest, Volume 13, Number 33 Sep 30, 2009
Emerging from a two-day summit in Pittsburgh last week, leaders from the Group of 20 rich and emerging economies repeated calls for the WTO's Doha Round of trade talks to be concluded before the end of 2010, and instructed their trade ministers to meet early next year to assess progress toward a deal.

NAMA Talks Spin Wheels While Rules Group Finds Some 'Common Ground'Bridges Weekly Trade News Digest, Volume 13, Number 33 Sep 30, 2009
As the frequency of meetings, if not the pace of substantive progress, picks up at the WTO, industrial goods negotiators met last week to discuss non-tariff barriers to trade and sector-specific liberalisation proposals. Meanwhile, negotiators in the rules group made tentative steps forward in the long-controversial negotiations on fisheries disciplines.

Rules on corruption are far from hard and fastHaig Simonian (FT) Sep 30, 2009
The United Nations and PwC have catalogued different anti-corruption policies as a first step to defining broader rules – or at least voluntary guidelines – for big business. The results hint at some important themes.

Clearing up the future of futuresJohn Gapper (FT) Sep 30, 2009
Banks have found corporate allies in their battle to stop the tough new rules proposed for derivatives, including demanding that standard contracts are traded on an exchange. But they must not be allowed to derail the regulations.

The IMF beyond IstanbulArvind Subramanian (PIIE) Sep 30, 2009
At the upcoming meetings in Istanbul, the International Monetary Fund will likely strike a triumphant tone following its commendable response to the global financial crisis, says Arvind Subramanian. Beyond Istanbul the IMF needs to undergo two important change to prove that the leopard has truly changed its spots. First, the IMF needs to select a competent—preferably Asian—Managing Director, as favoring an Asian candidate recognizes the growing weight of the region and allows the IMF to regain legitimacy in the area where it is most eroded. Second, the IMF needs to take on a macroprudential approach to capital flows that can serve as a safety valve against the buildup of potential bubbles.